Why bitcoin investors are like stamp collectors

Bitcoin and the growing number of copycat blockchain-based fidgets are guilty of false advertising when called "cryptocurrencies". They're more like "cryptostamps".

The word is important. With the bellboys now piling in, the misapprehension that the computer-generated bits and bytes are a "currency" lends an aura of contained value that is absolutely misleading.

Bitcoin and its many sprogs have none of institutional backing of actual currencies or even the physical presence and alternative uses of gold. They represent a pure mania - the price rising in the belief that other people will continue to bet on the price continuing to rise.

The belief or hope that there will always be a greater fool wanting to buy is supposed to be underwritten by bitcoin's "limited edition" status - a limited number can be produced. Which makes bitcoin buyers more like stamp collectors - or perhaps rare coin collectors.

The Australian 1930 penny became valuable because only a few thousand were minted, people wanted them to complete coin collections with subsequent competition steadily pushing up prices until the rising price itself attracted demand. Our most expensive stamp, the King Edward VIII twopenny scarlet, was never actually issued.

As a currency, cryptostamps are an improvement on rare physical coins and stamps as they are priced more quickly than the real things - but they are still lousy as a medium of exchange for the same reason a 1930 penny is: you don't know it's value until you sell it. Accept a bitcoin as payment for your VE Series 2 Commodore and you won't know if you've sold the car for $12,000 or $18,000 until you in turn sell the bitcoin.

There is no guarantee of "value", to use the word loosely, from minute to minute, as wild trading of things this month has underlined.

What's worse, bitcoin and its peers could turn out to be more like baseball, NFL and basketball trading cards that go through periods of fad popularity. The NRL got into the game here for a while, I think there's still an Alfie Langer Signature Gold somewhere in the attic amongst my sons' trophies, ribbons and early art works.

That the cryptostamps are multiplying adds to the risk of eventual collapse - just like NRL cards. Anyone who's a big enough nerd can start a new virtual mine, call the output something vaguely alluring and try to convince the punters the generated binary sequences are worth real money. Cue Litecoin, Ethereum, Potcoin, Zcash, Dash, Ripple, Monero et al.

In its early days, bitcoin has had "currency" uses on the dark web. Sea shells used to work in the New Guinea highlands as well.

Australian research has found about a third of bitcoin users are doing it for nefarious purposes. ( What follows from researchers being able to track the use of cryptostamps is that various authorities won't be far behind. When Plod works out how to snatch the proceeds and tools of crime, the price will crash.

There's also the little problem of what the punter can trust to hold a Bit-thingy, as stories of stolen and lost cryptostamps have demonstrated.

And, unlike your old penny, KEV 8 or gold bar, you can't even enjoy looking at a cryptostamp, can't have it framed, play two-up with it or turn it into jewellery. Pretty useless, really.

If you like rollercoasters, enjoy the cryptostamp ride while it lasts. Just remember all rollercoaster rides come to an end. Don't go whinging about the Winklevoss brothers ramping the market when it's over.

In the meantime, if anyone wants to swap a bitcoin for an Alfie Langer???